Our event management company has the opportunity
to purchase a large tent for only $15,000.
We believe that, over the next 5 years, having the tent will increase
our annual profits by $3,250. We also
have the opportunity to use that same $15,000 to invest in another project that
will most likely produce a 6% return on the investment. From a purely financial perspective, should
we purchase the tent?
An energy efficiency system has been recommended
for our Wedding Reception Center. It
will cost $7,000 to purchase and install.
The system will be obsolete in approximately 5 years, but will help us
to realize utility bill savings of $3,000 in the first year, $2,000 in the
second year, $1,500 in the third year, $1,000 in the fourth year, and $500 in the final year. Other investment options at the same level of
risk (7%) are also available. Should we
invest in the energy efficiency system?
For how many years would a $350,000 investment
need to yield $37,635 annual cash flows in order to realize a 6% IRR?
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